General Partner Clawback

The "general partner clawback" is a provision found in the partnership agreement of private investment funds, like real estate funds, venture capital funds, or private equity funds. This provision ensures that, over the life of the fund, the general partner (GP) or fund manager doesn't receive more than their agreed share of the profits.

This clawback provision typically comes into play at the end of the fund's life. Let's say, for example, that the GP received substantial carried interest from the fund’s early investments, which were highly successful. But then, later investments performed poorly. In this case, the GP may have ended up receiving more than their agreed share of the total fund profits (usually 20%). The clawback provision requires the GP to return the excess to the limited partners (LPs).

The clawback provision serves as a way to balance the interests of the GP and the LPs over the life of the fund, ensuring that profits and losses across all investments are taken into account before final distributions are made. It's a means of protection for LPs to ensure they receive the agreed-upon share of the total fund profits.